Government considers furnace oil import on 4-month credit

Petroleum ministry seeks finance ministry’s guarantees for long-term supply۔


Zafar Bhutta July 30, 2012

ISLAMABAD: The government is discussing arrangements for import of furnace oil on four-month credit from international suppliers in the face of financial crunch being faced by oil marketing giant Pakistan State Oil (PSO) because of delay in payments by power companies.

According to sources, the Ministry of Petroleum has approached the Economic Coordination Committee (ECC) for long-term credit facility for PSO, which will enable it to import furnace oil on four-month credit as the company is not in a position to make payments in two months.

At present, PSO is importing furnace oil on the basis of two-month deferred payment.

In a summary sent to the ECC, the petroleum ministry suggested that the finance ministry should be asked to extend the facility to PSO by giving sovereign guarantees for import of furnace oil on four-month credit.

However, government officials were of the view that it was a temporary measure to continue oil supplies rather than tackling the swelling circular debt head-on.

Receivables of PSO, mainly from the power companies, have piled up to Rs245 billion while it has to pay Rs174.7 billion to local and international fuel suppliers.

The proposal came after recent talks between Pakistan and India on oil trade in New Delhi. India is ready to export petroleum products, including furnace oil, through the land route of Wagah, which provides an opportunity to Pakistan to clinch deals on long-term credit supply.

However, some government officials were of the view that no country would be willing to export furnace oil on four-month credit. “However, big oil traders may enter into such an arrangement,” an official said, adding after approval of government guarantees, PSO would be able to strike long-term contracts with the oil suppliers.

According to the official, PSO could arrange long-term credit supply by inviting tenders. In the talks with India, Pakistan also asked Indian authorities to participate in PSO tenders for oil supply.

Furnace oil demand in the country stands at about 9 million tons, of which local refineries produce about 2.5 million tons and the rest is imported. Demand for the oil is expected to rise as the government is working on new power plants.

The official pointed out that PSO was facing default on payments to the international oil suppliers. In a letter sent to the ministries concerned, PSO has requested immediate release of Rs50 billion if the government wants to ensure supply of furnace oil to power companies to reduce load-shedding.

“We have also requested the government to clear the total outstanding amount of Rs245 billion if it wants smooth supply of oil to the power sector,” a PSO official said, adding the petroleum ministry had taken up the issue with the water and power ministry.

Published in The Express Tribune, July 31st, 2012.

COMMENTS (1)

gp65 | 8 years ago | Reply

Which country will supply a product with high demand and high price volatility like oil on a 4 month credit to a contry with a sovereign credit rating of C? (only 2 countries in the world have an equal or lower rating.

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